The Pyrrhic Victories of Putin and the West

Mutually Assured Destruction

The
Pyrrhic Victories of Putin and the West

Russia's economy + currency are collapsing from oil price drop and sanctions, but Ukraine's is dropping faster: 60% drop in hryvna. Russia can survive it, but Ukraine is tottering on collapse and default. Russia destroyed Ukraine's economy, and the West has destroyed Russia's, utterly useless Pyrrhic "victories." Putin, his great rep as a stabilizing force immolated, isolated + humiliated, could double down + do something truly reckless. - Dec 2014

KIEV - December 27th 2014:
The sanctions against Russia and oil price cuts have finally
worked- they are destroying the Russian economy: the value
of the Ruble has collapsed, losing 60% of its value since
the PutInvasions of Ukraine started (80R/$ on Dec 16, when I
lived there last it was 26). But that's little solace for
Ukraine, whose economy has collapsed faster, the hryvna also
losing 60% of it's value since Putin's war started (their
embargoes started with the Maidan Protests a year ago). The
difference was Russia had an enormous cash reserve of $550
billion, now supposedly ~ $400 bil., to weather
shocks that allowed them to cruise through the 2008 crisis,
whereas Ukraine had a $40 billion deficit, incidentally the
same amount kleptocrat misruler Yanukovich is alleged to
have stolen in 4 years ($27 mil/day) .

The Western
decision to assess sanctions on Russia after Crimea rather
than give direct military aid to Ukraine consigned it to
losing the East (Donbas*), since economic sanctions would
take 8 months to a year to have any significant effect.
Every cautious step of Putin's escalation went unopposed,
despite the '94 Budapest Memorandum pledging US, England,
and Russia to defend Ukraine's borders in exchange
for giving up their nukes, no spine was shown by America or
NATO: Obama considered it a peripheral issue in Russia's
sphere of influence. A much firmer initial response
could have probably backed Putin away from the Eastern
insurgency/Invasion; Russia already had Crimea to digest.
Ukraine could endure the loss of Crimea, but losing the
industrial heart of Donbas likely would be fatal to the
economy (letter/response to/from Obama), no
matter how much Western money was thrown at them.

The
problem with sanctions, besides being way to slow to have
any effect on the War, was that they were regressive, not
stimulative (as arms sales would be), damaging many
economies, and would have no effect on Putin's lust to
recreate a Soviet Union 2 in the Eurasian Customs
Union he bullied several FSU republics into. Sanctions,
in fact, to Vladimir Vladimirovich, were a tool of the weak,
and infuriated him far more than a US fleet in the Black Sea
or squadrons of F-16's sent to Ukraine. The PutInvasions +
Sanctions have provoked a new Cold War; and the fallout from
Russia and Ukraine could soon spread beyond the countries
that trade with Russia.

Putin's response was almost
comically bad, damaging the Russian economy more. He put an
embargo on Western foods, causing hardship to modern
Russians, who've grown accustomed to eating like the 1st
world (foreign vacations are now out of reach); he jailed even friendly
oligarchs to rob their companies (released Yevtushenko Dec
17), provoking capital flight of perhaps $200 billion; he
continued sending massive Russian military aid and troops
into the Donbas (whose missiles downed MH17); he spit in the
West's eye with reckless military provocations, like
kidnapping an Estonian criminal investigator from the border
just after Obama spoke there.

The Crimea, now part of the
imperial realm, will also need billions of support
(pensions, food, infrastructure), construction of a huge
bridge across the Kerch Strait to link it to Russia,
replacement of the devastated tourist industry. Unprepared
to fund the destroyed Donbas (although some pensions are now
being paid!), Russia is furious that Kyiv has cut off
payments to the lost region, though they still are providing
free heat and electricity; even thought the insipid
Donetsk Peoples Rep. has denied Kyiv the coal to fuel
those power plants. This could force Russia to spend
billions or face charges of betraying NovaRossiya, when all
they wanted was to bleed Ukraine and prevent their ascension
to NATO. Having created deep hatreds and grandiose
expectations with a year of toxic TV propaganda, Mr. Putin
can't just abandon NovaRossiya to evil Kyiv. The Saudi oil
price collapse- 70% of Russia's problem (losing Russia
$110 billionrevenue in its $57 slide since the
summer, oil +gas are 70% of Russia's exports)- was more an
act to punish Iran and Russia than their putative
claim to crush the American shale oil/gas producers who have
created the worldwide glut. Oil is set to fall more, maybe
down to $20/barrel, stay there a year or more, and gas
will soon follow (price is keyed to oil price on a 6
month delay: oil collapse started in June), forcing the
Russians to renogiate prices. And the Sanctions have made
refinancing the huge Russian foreign bond payments due,
impossible.

Ukraine, roiled by 6 months of protest,
turmoil, revolution, invasion, and war; badly mishandled the
initial subversion in the East. 60 loyal commandos and 500
troops could have easily taken back all Separatist occupied
buildings in April-May (I begged
ministers to do that- for weeks the rabble was drunk
every day delay meant hundreds would die), but Ukraine was
crippled by 350 years of Russian domination (not a shot was
fired against Russians in Crimea by the "fascist" Ukrainians
despite being beaten, tortured, and 4 killed by the
invading "Green Men"), the total penetration of the
Ukrainian intelligence and military by Russian agents (admitted to me by the Dep. Defence
Minister), a moribund military starved for 24 years and
crippled by Yanukovich's treachery (4 top ministers were
ex-Russians), and the endemic Soviet corruption that was
one of the prime reasons for the Maidan Revolution.
After the breathtaking success of that Revolution, Ukraine
had only 5 days to celebrate before Russian commandos
invaded and amputated Crimea, paradisical vacation spot for
the whole FSU.

With no real finances and a crippled
military, the interim leaders chosen after Maidan just
didn't take the hard decisions needed to fight a war:
declaring martial law in the Donbas, mobilizing the people,
instituting a draft, tripling military funding, and cutting
military exports to Russia. Faced with 3 wars by
Russia: 1. an economic embargo, including lifeblood natural
gas; 2. destruction and theft of hundreds of billions in
wealth, 25% of the people, 20% of the economy, 30% of the
industrial base in the takeover of Crimea and the Donbas;
and 3. a blizzard of poisonous propaganda about alleged
suppression of Russian speakers (utterly imaginary- Russian
is spoken by 90% of Kiev and Russians have historically been
the master race here) and "Nazi" tendencies... Ukraine was
effectively handcuffed from responding forcefully. Thousands
of paid Russian trolls cluttered every news comment section,
while fellow traveller journalists and addled old-line
"liberals" repeated the Kremlin's absurd lies.

It first
provoked some of the previously content Donbassans to
revolt, egged on by hundreds of paid protesters, many
Russian "tourists": $500 to storm a bldg, $70/day to protest
(though Donetsk got 42% of
all Ukraine's development money from prev Gov. Yanukovich),
then Russian/Ukrainian mercenaries were sent in, then 80% of
gullible Russians, who've lost their 80's cynicism at
Kremlin lies, turned against Ukraine (60% liked Ukrainians
in Jan, by now only 10%).

Even the collapse of the Ruble is bad news for
Ukraine- the economies are still so interlinked that it
hurts the Hryvna (now 18/19 to the $; for 5½ years till
Feb. it was stable at 8/$). With $12 billion of foreign loans due in 2015, 40% bad bank
loans, a 7% drop in GDP, company + country bonds devalued
33-50%, and under $9 billion of foreign reserves; at the now
atrocious exchange rate, default is looming for Ukraine.
That will also hurt Russia: Putin is getting an object
lesson in the interdependency of the modern world. The EU is
showing no desire to pop for the $15 billion
Ukraine is begging for (on top of the $17 bil, though not
much of that has been issued). The same is true for Russia;
they owe $700 billion, but it's 92% private: overextended
corporations or banks may default, though the Government
won't. The Kremlin just bailed out banks for $16 bil. with
more to come.

The Ukrainian populace, however, is being
hammered - product prices, even domestic, have doubled, but
wages haven't budged; and utilities have skyrocketed because
of IMF pressure to stop the hemorrhaging of Naftogas, which
looses $10 bil/year. There are reports of hunger and food
riots in the East, where no banks are normally functioning.
My hot water bill went up a breathless 8-fold in 1
month, and in telling fashion they estimate
we use 1000L/day of cold water (maybe double reality):
we have no meters, so there's no motivation to save gas or
water. That may be moot now since with the coal shut off
from Donbas, Ukraine is only 3 weeks from running out for
their power and heating (central hot water) plants. The +90
carbon coal they burn, anthracite, is only 1% of all coal
and after Rukrainia, quite distant. The longterm gas
situation isn't set to improve: all 3 shale gas
projects have been cancelled, in the East cause of
the war (Slovyansk is 2nd biggest reserve in Europe), in the
Black Sea cause of Putin's land grab, and in Lviv cause
useless lawmakers didn't pass the tax changes required. And
the one bright spot, agriculture in the rich black
earth of Ukr, was sullied by the news that a glowing
success story: Mryia turned out bankrupt and are
books were massively cooked.

Meanwhile the Little Big
Man's star is falling in Moscow, economic disruption is
ripping through the country as the daily nightmare of
hyperinflation returns. After years of it in '91-96, '98-9,
Russians thought their relative wealth had banished it
forever. Like all Westerners, Russians now all have billions
of $ of loans out, many denoted in dollars
or

Euros. Among oligarchs, Putin's pals are
being pummelled, Tymchenko, Sechin, Usmanov have lost 1/3 of
their paper fortune; financier Ivan Shervashidze shot
himself dead Wed. at the National Hotel; Sechin got the
Central Bank to issue his Rosneft oil monopoly billions in
unsecured credit Tues., provoking the latest collapse, even
as they jacked up the interest rate to 17%. The ruble
bounced back Wednesday to 59-64R / $ where it stayed, after
Russia bought $7 billion dollars of rubles, and Russians
settled down.

Putin is a man from the past, the KGB of
the 70's, and has returned Russia to the party monoculture,
astronomical corruption, overweaning central authority, 85%
propaganda, military bullying and bluster, and fear of
dissent of that era. After the Crimean invasion, I predicted
that he had unleashed tidal forces that would sweep
him away in 4-5 years, maybe sooner now. Docile Russian
press have made unprecedented criticisms “Vladimir Putin
has lost the political initiative." His great claim to fame
after the wild 90's was economic stability, now
vaporized. That was his agreement with his people, you can't
have political freedom or less corruption, but you will live
well. "I'm happy with him. I'm making 7 times more than 5
years ago!" said an IT guy to me in 2007 in Moscow.

The
Donbas War has now caused perhaps 9000 deaths, every
one on Putin's head (all quotes are ridiculously low, not
counting Ukr soldiers ~1300, Separatists ~2000-2500?,
Russians ~1000?), +1200 people just since the porous
"cease fire" of Sept 7, UNHRW counts 13 a day still
being killed there. Aussie journo Demjin D, who's spent 6
months in the Donbas, said he's seen 1500 new Russian
vehicles in the last 2 months there, inc 400 tanks, 200 Grad
trucks, 100 mobile artillery, he expects a massive
offensive; DNR "PM"Zakharchenko has promised to retake
Slovyansk, Artyemsk, + the large port of Mariupol, and he
just declared the ceasefire was over on Dec 25. At a
minimum, these reinforcements argue against withdrawal. The
US Congress finally passed a bill to provide $350 million of
military aid to Ukraine, 6 months too late, and Obama just
promised to sign it. Including are more painful sanctions against inter.
financing of large Russian state firms (who owe $100's of
bil. of loans), which at this moment will be more salt in
the wounds to Putin.

The PutInvasions, embargoes, and
especially Eastern partition have been devastating to
Ukraine; meanwhile the sanctions and especially oil price
collapse are also trashing Russia, both occurred because of
the reckless rage of one autocrat, and the reluctant
incremental actions by an outraged world to the first major
European power invasion since WW2, both Pyrrhic victories in
a winnerless struggle. After all the pain and travail
Ukraine has suffered in their year odyssey to escape their
Soviet chains, it would be a tragedy to let them go down the
tubes now, especially when the new 75% reformist Parliament
and Government are finally undertaking brutal reforms and
confronting corruption.

Putin seemed to be resigned to a
long standoff in his opus yearly press conference, he
expected 2 years of hardship. But seeing his realm
and power shrinking or collapsing, he is still utterly unpredictable, he might react
militarily and up the ante in standard Soviet training or
back off like in the Cuban Missile Crisis. The Pearl Harbor
attack was partially provoked by a US embargo. He was born
in 1952 amidst the devastation of post-war Leningrad, but
never saw the 28 million deaths in WW2; he doesn't have that
seminal experience of mass death that informed and
moderated all Soviet leaders.‡, or the visceral
understanding of the realities of a nuclear apocalypse. He
is also a small man of enormous self-regard, serious skills,
and a steely will, a retreat now would be an almost
inconceivable humiliation to the still vastly popular
potentate.

‡ I lived by Piskarevskoye in St.
Petersburg, a single mass grave that holds 700,000 victims,
the nonstop ghostly dirge floating into my windows was
testament to the fact that Russians never give up. I
speculated in '94 that the Soviets had nuke and
missile-making factories inside mountains to keep building
them after a nuclear war, ~5 years later 60
Minutes took a tour of
one.

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